It’s not a question of if investors should invest in fixed income but rather where they find those opportunities, according to a global fund manager, as the market shifts to offering support to the asset class.
“One of the biggest changes asset managers have seen this year is the change in the role duration can play,” Aviva Investors AIMS fixed income senior portfolio manager, Joubeen Hurren, told Money Management, noting that “bonds fit portfolios more this year” than they had recently.
Add to this inflation undershooting targets, the Fed’s position thus far this year on interest rates, and the fact that, on a tactical basis, the market was due for “a bit of a consolidation in yields”, and Hurren believed that “it’s a supportive environment for fixed income”.
Emerging markets could offer an attractive prospect for investors looking to take advantage of the fixed income-friendly landscape, he said, with the difference between developed economies and emerging markets currently the biggest it’s been.
While trade tensions between China and the United States and the impact that could have on the Asian giant’s growth warranted consideration, as the former economy represents such a huge portion of emerging markets’ wealth, Aviva took a position that China “will do anything they need to do to backstop growth”.
Hurren pointed to the Chinese Government’s more consumer-focussed approach to stimulating the economy this time as proof, saying that while it was “juggling plates” at the moment, growth was its primary aim and he was confident that the nation would prove successful.
Advisers should also explore the options available to clients looking to grow, or indeed create, the fixed income portion of their portfolios.
“When you talk to clients, they’re surprised by what you can do in the fixed income space,” Hurren said. “It’s not just duration and credit, you also have volatility, curve and inflation strategies.”
In terms of when to invest, Hurren believed that that decision should come down to an individual investor’s time-line. Taking the position that the current market cycle could be extended by up to six months but would inevitably end, he urged advisers to consider whether clients needed the benefits of their fixed income exposure in the next couple of years or whether they could take a more long-term approach.
The chart below tracked the performance of the Aviva Investors Multi-Strategy Fixed Income fund, which Hurren co-managed, for the year to date against the Reserve Bank Of Australia Cash Rate, which it sought to outperform by three per cent pa across rolling three year periods.